No Signs of Stability in U.S. Mobile Market

T-Mobile US unveiled a new set of initiatives aimed at attracting business customers, and an expanded program to take consumer share from other U.S. mobile carriers, as part of its Uncarrier 9.0 announcement.

Sprint earlier this month launched new programs to encourage switching as well.

With some observers wondering how long the U.S. price and promotion war might moderate, or end, the answer seems to be “not yet,” even if no price war lasts forever.

Under other circumstances, a reasonable expectation might be that we face at least another year of unusual efforts at price disruption, to be followed by a period when the leading contestants have adjusted enough to show they can weather the attack, and the attacker or attackers find they have gained share, but now have to switch to improving profits.

Under other circumstances, one might argue the price war will last as long as T-Mobile US and Sprint believe they can continue to add net new customers every quarter.

If the rate of net additions starts to flatten, then T-Mobile US, for example, will have to begin weighing a shift in strategy from price disruption to earning profits.

One other likely predictor is that the war will end when U.S. market structure stabilizes into a structure with a clear number one, a number two that has no easy way to displace the top provider, and a number three provider large enough to sustain itself in that position, with the number four supplier far behind the other three.

Under other circumstances, one might argue we are close to a stable market.

In a classic oligopolistic market, one would expect to see an “ideal” (normative) structure something like:

We are not too far from that pattern. In terms of revenue share, Verizon in early 2015 has about 39 percent share, while AT&T had 33 percent. One might argue both Verizon and AT&T will lose much incentive to engage in promotional behavior when AT&T no longer believes it can catch Verizon, and the number three contestant no longer really believes it can catch number two, for example.

The number-three supplier, in terms of revenue, is Sprint, at about 15 percent revenue share. It is almost precisely where one would predict the number-three supplier would be.

The issue, right now, is that T-Mobile US believes it must grow, or eventually be acquired. Of late, T-Mobile has been rapidly gaining share, with the intention of supplanting Sprint at the number three position.

The problem is that U.S regulators seem unwilling to allow an acquisition of T-Mobile US by Verizon, AT&T or Sprint. That means only a new contestant could do so. And that means the classic oligopoly structure cannot form.

Among the variables are Dish Network’s need to enter the market or sell its spectrum; Comcast’s expected entry and then any future moves by a large Internet player (Google, Apple or another firm).

U.S. Revenue Share

Firm

%

Verizon

39

AT&T

33

Sprint

15

T-Mobile US

12

With the caveat that spectrum is not revenue, the U.S. mobile spectrum ownership picture remains likewise unstable.

Spectrum Share

Provider

Percent

Sprint

29

AT&T

21

Verizon

17

Dish Network

15

T-Mobile US

12

The point is that the U.S mobile market does not presently resemble a stable oligopoly market, not do the medium term competitive prospects suggest the market will assume such a form.

That means, no matter how long the immediate marketing war lasts, the market will remain unstable.

Strategically, Comcast is expected to enter the market, at some point. Cablevision Systems Corp. already has done so, though as a niche provider with greatest potential impact in its limtied home operating area. Comcast almost certainly will have to enter as a national provider.

Dish Network either must enter the market as an operator, or forfeit the rights to spectrum that presently accounts for as much as 80 percent of its total market value.

And then there are the other contenders, including Google, which it is believed soon will be entering the mobile market, and Apple, a perennial potential actor in the market as well.

Even if the biggest current question mark is what Dish Network will do, Dish decisions will not affect the unstable market structure, since Dish entry would not eliminate a major contestant. Nor would a spectrum sale do so.

Verizon arguably has the greatest gap between revenue share and spectrum share. But some say Verizon cannot afford to buy that spectrum at prices Dish Network would ask for, or that regulators would not allow Dish to sell to Verizon.

Sprint has excess spectrum and T-Mobile US cannot afford to buy much more.

So Dish Network might yet actually move ahead and become a service provider, adding one more contestant. Dish might become a wholesale capacity supplier, which would not increase the number of retail suppliers.

It might try to buy T-Mobile US. Or it might sell the spectrum. If so, the buyer is likely to be another company not presently in the mobile business in a significant way, such as a Google or a Comcast or another firm.

Dish might also try to create a new type of mobile supplier--focusing on mobile TV.

In all those scenarios, the number of suppliers would not contract to a stable pattern.

Popular posts from this blog

You can see where this is going. Younger users text more than they talk, and though today's users 25 and above still talk more than they text, the usage pattern is uniform: younger age cohorts text more than older age cohorts.

So as each age cohort advances, one might predict that texting behavior will grow over time. How much it grows is the only real question.

Users 18 or younger actually"talk" about as much as users 55 to 64. One suspects an awful lot of "voice" activity is of the coordination and collaboration sort, so that younger and mid-life workers might be in work groups that require more coordination than workers 55 to 64.

Industry competitors normally pay money to track their market share versus their "real" competitors. The problem is that, in rapidly-changing and porous new markets, the legacy competitors--even when they are the most benchmarked firms--are not the strategic competitors. These days, many service providers would say that "Google" or other app providers are their key competitors, even as they continue to benchmark against others in their "narrow" markets (mobile market share, or fixed network video or internet access).

The biggest single change in the internet value chain between 2005 and 2010, for example, was the shift of revenue from telcos to Apple, Microsoft and Google. Telecom providers lost 12 percent of profit, while Apple, Microsoft and Google gained 11 percent. source: McKinsey Nevertheless, the strategic issue is diminishing relevance. The "access to the internet" and associated service provider functions simply represent less value in th…

By now, telecom executives are well aware of the “disruption” market strategy, whereby new entrants do not so much try and “take market share” as they attempt to literally destroy existing markets and recreate them. Skype and VoIP provider one example. The “Free” services run by Illiad provide other examples. Most recently, we have seen Reliance Jio disrupting the economics of the mobile market in India, offering free voice in a market where voice drives service provider revenues. “Free” is a difficult price point in most markets. But free voice forever is among the pricing and packaging foundations for Reliance Jio’s fierce attack on India’s mobile market structure. “Free voice” does not only lead to Jio taking market share, but reshapes the market, destroying the foundation of its competitor business models. At the same time, Jio hopes to become the leader in the new market, driven by mobile data, with far-higher usage and subscribership, and vastly-lower prices. source: GSMADisruption…

Gary Kim has been a communications industry analyst, consultant and journalist for more than 35 years. He currently works mostly as a content developer (marketing copy, white papers, applied research, conference and blog content.

He speaks frequently at industry events, has written one book, half a dozen major market studies and 24,000 articles. His work is noted for its examination of business model issues.

He was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.